Question

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Julia purchased a warehouse building, including the land it was on, for use in her business. The total cost of the purchase was $1,399,500; $322,000 was allocated to the basis of the land and the remaining $1,077,500 was allocated to the basis of the building. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

c. Assume the building was purchased and placed in service on October 28. Using MACRS, what is Julia’s depreciation deduction on the building for years 1 through 3?

   

Answer 1

Per IRS, a non residential building would be depreciated under the "Mid month convention" for a period of 39 years. Under the Mid month convention any asset placed in service during the month would be considered as being in service for half period of that particular month. The basis allocated to the building per the question above is $1,077,500.

The depreciation deduction on the building for years 1 through 3 are as follows:-

Year	Cost	MACRS %	MACRS Cost recovery
1	1,077,500	0.535%	5,764.63
2	1,077,500	2.564%	27,627.10
3	1,077,500	2.564%	27,627.10
	Total		61,018.83

Julia's total depreciation deduction for the buildings for years 1 through 3 is $61,019(Rounded)

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